Markets update: Asian stocks follow Wall St lower on Fed hints at rate hike

Asian stock markets followed Wall Street lower Thursday after the Federal Reserve indicated it might ease off economic stimulus earlier than previously thought.

Tokyo, Hong Kong and Seoul fell while Shanghai gained after Fed policymakers, who previously forecast no interest rate hikes before 2024, estimated their benchmark rate would be raised twice by late 2023. The Fed also indicated it sees the US economy improving faster than expected.

On Wall Street, the benchmark S&P 500 index fell 0.5 per cent on Wednesday after Fed projections showed some of its board members expect short-term interest rates to rise by half a percentage point by late 2023.

Ultra-low rates from the Fed and other central banks have propelled a global stock market rebound from last year's plunge amid the coronavirus pandemic.

The Fed may have delivered a more hawkish message for markets than many would have expected, Yeap Jun Rong of IG said in a report. Still, Yeap said, differing views among board members suggests much will still depend on how the economic recovery will play out.

The Nikkei 225 in Tokyo lost 1.1 per cent to 28,965.07 and Hong Kong's Hang Seng was off less than 0.1 per cent at 28,434.62. The Shanghai Composite Index was up 0.2 per cent at mid-morning at 3,525.67.

The Kospi in Seoul sank 0.5 per cent to 3,261.05 and Australia's S&P-ASX 200 shed 0.4 per cent to 7,357.90. New Zealand, Singapore and Jakarta declined while Bangkok advanced.

The Fed's announcement Wednesday reflected growing confidence in the US economy as more people are vaccinated against the coronavirus and business activity revives.

Investors have been worried the Fed and other central banks might feel pressure to withdraw stimulus to cool rising inflation. Fed officials have said they believe that inflation will be short-lived, a stance they repeated Wednesday.

Fed chairman Jerome Powell said any changes are some way off but conditions have improved enough to start discussing when to slow bond purchases. The Fed is buying $120 billion a month to inject money into financial markets and keep longer-term interest rates low.